By miguel cane
The cognitive problem with financial crises is that they are the most difficult to understand, especially when we talk about their global nature. Recalling the events of 10 years ago, many publications, assessments, conclusions and descriptions, historical parallels and vivid metaphors or comparisons come to mind. We have to admit that the consequences of global financial crises are always very tangible and painful. Still, his understanding, and therefore comprehension, is hopelessly limited.
What is the main characteristic of a situation that could be a harbinger of the global financial crisis?
The characteristics formulated below are understood to refer to a very large and significant single-state economy. This is the only way it can affect international financial and economic relations and cause a global crisis.
- There is a very high level of consumer debt (families actively buy consumer goods on credit and obtain a mortgage), and companies actively finance their investments (investments, transactions) through loans.
- The presence of a significant amount of unsecured loans from households and businesses or “bad” loan guarantees (when there is a risk of collateral deterioration).
- The principles of competitiveness are not followed (lack of regulation of sectors of the economy).
- Weak requirements for banks and financial companies (they finance our consumption, business activity and public spending) or, on the contrary, poorly thought-out regulation of the financial markets.
- The concentration of substantial financial investments (capital outflow) in specific sectors of the economy, countries or regions of the world (and the mirror situation is the concentration of huge debts).
Causes of the financial crisis
- Difficult sociopolitical situation;
- Inept financial and economic management;
- Oversaturation of markets with assumptions (competition);
- Natural phenomena (cataclysms, wars, catastrophes);
- Risky decisions regarding the development of banks and financial institutions.
The internal and external causes of the world economic crisis do not develop immediately. Still, they accumulate, leading the state into a state of depression, recession, and destabilization. Therefore, when the first signs of these phenomena appear, it is crucial to rethink political decisions and respond quickly to a volatile economy.
The main problem of the financial crisis.
The above reasons for the crisis phenomena are recognized as a consequence of economic development. Experts are sure that where there is stability, an imbalance is inevitable. In capitalist times, it was caused by underproduction. In modern times, by overproduction. An imbalance arises in the context of poor management of available resources, a desire to get more without improving or adjusting the process. The states fight for dominance and ignore the accumulated tasks. This is the main problem of the global economic crisis or imbalance.
Main phases of the financial crisis
Any indicated economic crisis occurs after an imbalance, that is, a balance between consumer demand and production. In this case, a predictable cyclical pattern is observed when the period of growth is replaced by a decline or lack of development. These are the so-called phases of the economic cycle, which include:
- Recession, which is characterized by overproduction, accumulation of warehouse balances, falling demand for capital and investment, rising unemployment;
- Depression, in which there is an increase in unemployment, there is an opportunity to accumulate capital for further development, there is a process of reformatting or restructuring the economy;
- A rebound that brings with it a reduction in the number of unemployed, an increase in the demand for consumer goods and investment;
- The bubble effect, when the productive capacity is once again oversaturated, is the so-called inflationary gap.